Would Viewers Be Willing To Pay To Avoid TV Ads?

Andrew Sullivan’s decision to run ads on his previously ad-free political blog The Dish, which will only be seen by non-subscribers, raises an interesting question: are two-tiered pricing models the way of the future in media?

The Dish is a subscriber-funded site but non-subscribers can see a limited amount of content. Mr. Sullivan hopes to use ads shown to non-subscribers as an inducement to get them to sign up for the total package.

The concept — consumers avoiding advertising by paying a premium — is not an entirely novel one. Amazon, for example, in 2011 announced a cheaper Kindle for anyone willing to accept ads on the device’s home page and screen saver. Or take music-streamer Spotify, which is ad-free for paying subscribers but bombards non-paying members with ads (turning down the volume only pauses them).

This two-tiered model would perhaps seem most applicable to TV, where so many ads are already being skipped thanks to the rise of digital video recorders and video-on-demand (advertisers only pay for time-shifted ads that are actually viewed). A recent survey from Arris showed that 60% of survey respondents recorded a show just so they could skip the commercials. Half of TV homes in the U.S. now have a DVR, according to Nielsen.

Could networks boost their bottom line by offering a way to view their content ad-free for a higher price? Could Mr. Sullivan’s ad model make sense on TV? Networks missing out on ad dollars from DVR-using households could get some incremental revenue if they could persuade those people to pay a little more for their TV subscription in exchange for not having to skip over ads at all.

There’s one big flaw with this idea, of course: the current bundling of TV networks in pay TV subscriptions. Because consumers don’t pay individually for channels, pricing channels on an ad-free basis would be complicated. Experts say, therefore, that a breakdown of those bundles and the emergence of a so-called “a-la-carte” TV future, where viewers select the channels they want, would have to happen first. And that’s a long way off, some say.

“There will never be an a-la-carte TV world,” billionaire investor and Dallas Mavericks owner Mark Cuban wrote in an email to The Wall Street Journal. “Look at the music world. That is a-la-carte. How is that working for artists?”

And it’s still unclear how much networks would even benefit from an a-la-carte arrangement. “I think there’s an open question whether subscription dollars a-la-carte or some bundle is going to be enough to be incremental from a profit perspective,” said PwC’s Chris Lederer.

A bigger issue may be that people want to have their cake and eat it. eMarketer analyst David Hallerman says that studies show about 75% of viewers would rather see ads and get content for free than pay a subscription fee to avoid ads.

“The mindset of wanting to pay to get content and not see ads is a significant slice but only a slice of the market,” Mr. Hallerman said.

Still, it’s a decent slice. After all, the roughly 30 million people who pay for HBO — an ad-free, premium channel — clearly have that mindset. The question is whether a non-premium network would ever see the opportunity to offer a premium, ad-free version of themselves. Just an idea.

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.